Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — H1 FY22 Earnings Presentation
41 slides from Fonterra Co-operative's earnings presentation, Mar 17, 2022
Slide 1: Fonterra Interim Results 2022
Fonterra Interim Results 2022 17 March 2022
Slide 2: Performing well and creating momentum to achieve 2030 targets
• Performing well, and creating the momentum needed to ¹ achieve our 2030 targets ² • Record forecast milk price reflects strong demand at a time of constrained global supply • Inflationary pressures both on-farm and in our operations • COVID-19 remains a challenge, but we continue to deliver for ou
Slide 3: GDT reference product prices and price relativities
Monthly price of reference Reference and non-reference products on GDT price relativities on GDT (US$/MT) 2020/2021 2021/2022 (US$/MT) H1 H2 H1 Season Season FY21 FY21 FY22 4,000 4,000 3,000 3,000 31 May 20 30 Nov 20 31 May 21 31 Jan 22 31 Jul 20 31 Jan 21 31 Jul 21 31 Jan 22 Reference product shipm
Slide 4: Supply chain and operations
Enhanced milk utilisation and plant With only 38% of ships arriving on uptime has been supported by time in New Zealand, we are have partially offset rising collection costs, due to our on-farm milk vat through monitoring systems despite the disruption of site and shift collaboration of our supply c
Slide 5: Community and supply chain highlights
and good management of dairy donated to families to build stronger and planning, our nutritious breakfasts are in need across Aotearoa connections between end-to-end supply chain served to kiwi kids through since 2020 through our Fonterra farmers and has continued to operate our KickStart breakfast
Slide 6: Financial summary
¹ ² ³ Note: Total Group figures for the six months ended 31 January 2022. This includes continuing 2. Normalised basis. Attributable to equity holders of the Co-operative, excludes amounts attributable to non-controlling and discontinued operations interests 1. Reported basis. Includes amounts attri
Slide 7: Group financial results
million¹ ² ∆³ Sales volume (‘000 MT) Revenue ($) • Increased revenue from higher product prices, but partially offset Cost of goods sold ($) by lower sales volume, mainly due to lower milk production Gross profit ($) • Gross margin decreased due to significant increase in cost of goods sold, reflect
Slide 8: Normalised EBIT by quarter and segment
¹ ¹² ¹² Q1 Q2 Q3 Q4 Q1 Q2 Note: Figures are for the six months ended 31 January 2022 1. Prepared on a normalised continuing operations basis. Normalised EBIT contributions sum to $644 million, and does not align to reported continuing operations due to excluding unallocated costs and eliminations 2.
Slide 9: EBIT by segment
¹ Note: Figures are for the six months ended 31 January and prepared on a normalised continuing operations basis. Comparative information includes re-presentations for consistency with the current period 1. Eliminations and unallocated costs 9
Slide 10: Net debt, gearing, working capital and opex
7.5 7.6 48.2 47.3 6.4 44.2 6.1 • Reduced net debt and leverage mainly due to 38.5 retained earnings and cash proceeds from divestments in FY21 • Net debt and gearing are higher at half year 2018 2019 2020 2021 2022 2020 2021 2022 compared to full year due to seasonal profile of Net Debt ($ billion)
Slide 11: Farmgate milk price forecast
2021/2022 2019/2020 2020/2021 Season Season Season Forecast (US$/MT) per kgMS 4,000 • Reflects higher commodity prices at a time of strong demand and constrained global supply 3,000 • Risks include commodity price volatility, and disruption of global markets and supply chain due to COVID-19 31 May 1
Slide 12: Earnings guidance range
FY21 FY21 FY22 FY22 H1 H2 H1 H2 (US$/MT) per share 4,000 • Maintained current range: o Ingredients’ pricing across the portfolio 3,000 continues to support earnings o Pressure remains on Foodservice and 31 Jul 20 31 Jan 21 31 Jul 21 31 Jan 22 30 May 22 Consumer margins due to higher input costs Refe
Slide 13: 2030 targets: performance, investment, distribution
PERFORMANCE Increase dividends to Aspiration to be EBIT increase from FY21 Return on capital cents per share INVESTMENT moving more milk to in sustainability per annum in R&D higher value products for mix of investment in DISTRIBUTION further growth and return OF FUNDS to shareholders Intended to be
Slide 14: Strategy progress and innovation highlights
Making progress on divestment of Kowbucha™ methane reduction VitaKey collaboration to unlock Chile and ownership review trial continues to show promise and benefits of probiotic strains ahead of Australia moves to next stage of schedule and scope expanded Work with Government to enable capital struc
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Slide 16: Five-year half-year financial trends
2,075 2,037 10.4 9.9 10.8 2,003 1,996 1,921 9.8 9.7 1,659 1,668 1,722 1,607 1,489 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Sales Volume ('000 MT) Revenue ($ billion) Gross Profit ($ million) 1,263 1,232 1,092 1,055 1,062 684 806 584 607 657 607 458 312 312 (176) 201
Slide 17: Profit, capex, gearing and free cash flow trends
² ² ³ 501 346 391 364 316 418 364 72 180 293 147 248 112 72 (348) 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Normalised PAT ($ million) Reported PAT ($ million) Capital Expenditure ($ million) ³⁴ ³ 90 95 369 51.2 52.5 80 81 82 48.2 47.3 44.1 (690) (632) (782) (849) 20
Slide 18: New Zealand milk collection
90 Volume (m litres/day) 80 • Fonterra’s NZ season to date milk collection, June – February, was 1,160 million kgMS, 4.0% 70 behind last season 60 • Cold and wet spring with limited sunshine affecting pasture growth and collections early in 50 the season • Very dry and warm conditions from the 40 be
Slide 19: Income statement
¹ ¹ ¹ ¹ ² 1. Refer to Note 1a and 2b of the FY22 Interim Financial Statements 2. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees accounted investees 19
Slide 20: Profit reconciliation
¹ ² ¹ ² 1. Includes amount attributable to non-controlling interests 2. Attributable to equity holders of the Co-operative 20
Slide 21: Debt facilities and maturity profile
² ³ NZD DCM 9% Drawn Facilities FY22 FY22 Bank USD DCM $1.05bn Facilities 27% FY23 FY23 15% 49% FY24 FY24 FY25 FY25 FY26 FY26 FY27 FY27 FY28 FY28 FY29 FY29 CNY DCM Undrawn FY30 FY30 2% Facilities AUD DCM $2.86bn FY31 FY31 11% 73% 0.0 1.0 2.0 3.0 0.0 1.0 2.0 3.0 EUR/GBP $ billion $ billion 14% WATM⁴:
Slide 22: Operating expenses
¹ ² • Total Group normalised operating expenses increased $7 million: o Increased investment in research & development o Increase in administration, and distribution & storage, including the impact of COVID-19 supply chain disruption o Increase in ‘other’ expenses reflects costs associated with disc
Slide 23: Unallocated costs
¹ ² • Unallocated costs are favourable $63 million predominantly due to ‘Other’ • ‘Other’ is favourable $61 million, mainly due to the release of a $44 million provision held at Group following the conclusion of a judicial interpretation on the Holidays Act 2003 1. Refer to Glossary for definition 2
Slide 24: Channel results
$ million 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the six months ended 31 January. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information includes re-prese
Slide 25: Product pricing and cost of milk
¹ • The average reference product sales price per metric tonne has increased 24%: o WMP has been the significant contributor ¹ • The average non-reference product sales price per metric tonne has increased 16%: o Casein and whey products have increased significantly o Other products, such as cheese,
Slide 26: Financial details
¹ ² 1. Figures are for the six months ended 31 January and are prepared on a normalised continuing operations basis 2. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees 26
Slide 27: Channel results
$ million 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the six months ended 31 January. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information includes re-prese
Slide 28: Asia Pacific results
∆¹ ² • Lower sales volumes mainly due to lower New Zealand and Australian milk collections • Improved Ingredients channel performance offset by a decline in the Foodservice and Consumer channels o Increased gross margins in Ingredients channel due to ³ achieving higher product prices in our Australi
Slide 29: Channel results
$ million 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the six months ended 31 January. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information includes re-prese
Slide 30: Australia results
∆¹ ² • Lower sales volumes due to lower milk collections as a result of reduced herd sizes and weather impacting on-farm conditions • Gross profit and EBIT increased due to: o Ingredients channel achieving higher product prices and benefiting from a weaker Australian dollar ³ o Stable Consumer and F
Slide 31: Greater China results
∆¹ ² • Sales volumes up due to increased milk collections and continued growth in our Chilean business • Gross profit up $65 million, due to: o Improved pricing and product mix in Ingredients channel o Continued volume and gross margin growth in our Chilean ³ consumer business, offset by: ⁴ o Lower
Slide 32: Channel results
$ million 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the six months ended 31 January. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information includes re-prese
Slide 33: Chile results
∆¹ ² • Sales volume up, driven by stronger milk collections in Chile • Gross margin improved due to: o Improved product mix in Chile, reflecting growth in sales volumes of higher margin products – such as yoghurt and desserts ³ o Higher in-market prices due to the ability to leverage number one mark
Slide 34: Latin America and other regions results
∆¹ ² • Improved Ingredients channel performance offset by a decline in the Foodservice and Consumer channels o Ingredients channel improved due to higher prices and sales volumes of higher margin products, particularly ³ caseinate products ⁴ o Consistent demand for Foodservice channel but offset by
Slide 35: Channel results
$ million 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the six months ended 31 January. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information includes re-prese
Slide 36: Monthly cost of milk
(NZD/kgMS) 11.00 9.00 • Monthly cost of milk has been on average around $2 per kgMS higher than the previous year for 7.00 the first six months of the financial year • Increased cost of milk has placed pressure on margins in our Foodservice and Consumer channels 31 May 30 Nov 31 May Monthly Milk Pri
Slide 37: Board Statement of Intentions progress
In accordance with the Constitution of Fonterra, the Board Statement of Intentions sets out the Board’s intentions for the performance and operations of Fonterra. The table below provides an update as at 31 January 2022, of Fonterra’s performance against these targets. FY21 FY22 Q2 YTD FY22 FY Targe
Slide 38: Glossary
Represents the Ingredients, Foodservice and Consumer channels in New Zealand, Is profit before net finance costs and tax Australia, Pacific Islands, South East Asia and South Asia Means the average price paid by Fonterra for each kilogram of milk solids Represents the Ingredients, Foodservice and Co
Slide 39: Glossary (continued)
Is adjusted net debt divided by total capital. Total capital is equity excluding hedge Is calculated as total borrowings, plus bank overdraft, less cash and cash reserves, plus adjusted net debt equivalents, plus a cash adjustment for 25% of cash and cash equivalents held by the Group’s subsidiaries
Slide 40: Disclaimer
This presentation may contain forward-looking statements, financial targets and ambitions (“Forward Statements”), each of which is based on a range of assumptions, including (in the case of our 2030 strategy) the assumptions noted in the Appendix of the booklet titled Our Path to 2030 which is avail
Slide 41: Non-GAAP measures
Fonterra uses several non-GAAP measures when discussing financial performance. Non-GAAP measures are not defined or specified by NZ IFRS. Management believes that these measures provide useful information as they provide valuable insight on the underlying performance of the business. They may be use
Fonterra Co-operative Group — H1 FY22 Earnings Presentation on 6ix